68. profile on the production of sodium...
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68. PROFILE ON THE PRODUCTION OF SODIUM
BICARBONATE
68-1
TABLE OF CONTENTS
PAGE
I. SUMMARY 68-2
II. PRODUCT DESCRIPTION & APPLICATION 68-2
III. MARKET STUDY AND PLANT CAPACITY 68-4
A. MARKET STUDY 68-4
B. PLANT CAPACITY & PRODUCTION PROGRAM 68-7
IV. MATERIALS AND INPUTS 68-7
A. RAW & AUXILIARY MATERIALS 68-7
B. UTILITIES 68-8
V. TECHNOLOGY & ENGINEERING 68-9
A. TECHNOLOGY 68-9
B. ENGINEERING 68-10
VI. MANPOWER & TRAINING REQUIREMENT 68-13
A. MANPOWER REQUIREMENT 68-13
B. TRAINING REQUIREMENT 68-14
VII. FINANCIAL ANLYSIS 68-15
A. TOTAL INITIAL INVESTMENT COST 68-15
B. PRODUCTION COST 68-16
C. FINANCIAL EVALUATION 68-17
D. ECONOMIC & SOCIAL BENEFITS 68-19
68-2
I. SUMMARY
This profile envisages the establishment of a plant for the production of sodium bicarbonate with
a capacity of 6,000 tons per annum. The major application of sodium bicarbonate is as baking
soda.
The country`s requirement of sodium bicarbonate is met through import. The present (2012)
demand for sodium bicarbonate is estimated at 770 tons. The demand for the product is
projected to reach 1,092 tons and 1,462 tons by the year 2018 and year 2023, respectively.
The principal raw materials required are soda ash and carbon dioxide, which are all available
locally.
The total investment cost of the project including working capital is estimated at Birr 19.99
million From the total investment cost the highest share (Birr 15.89 million or 79.50%) is
accounted by fixed investment cost followed by pre operation cost (2.166 million or 10.83%) and
initial working capital (Birr 1.93 million or 9.67%). From the total investment cost, Birr 8.37
million or 41.87% is required in foreign currency.
The project is financially viable with an internal rate of return (IRR) of 23.77%and a net present
value (NPV) of Birr 13.38 million, discounted at 10%.
The project can create employment for 39 persons. The establishment of such factory will have
a foreign exchange saving effect to the country by substituting the current imports. The project
will also create backward and forward linkage with the chemical and food manufacturing sub
sectors and also generates income for the Government in terms of tax revenue and payroll tax.
II. PRODUCT DESCRIPTION AND APPLICATION
Sodium bicarbonate is a white crystalline powder (NaHCO3) better known as baking soda. It is
classified as an acid salt, formed by combining an acid (carbonic) and a base (sodium
hydroxide), and it reacts with other chemicals as a mild alkali. At temperatures above 300
68-3
degrees Fahrenheit (149 degrees Celsius), baking soda decomposes into sodium carbonate (a
more stable substance), water, and carbon dioxide.
The native chemical and physical properties of baking soda account for its wide range of
applications, including cleaning, deodorizing, buffering, and fire extinguishing. Baking soda
neutralizes odors chemically, rather than masking or absorbing them. Consequently, it is used in
bath salts and deodorant body powders. Baking soda tends to maintain a pH of 8.1 (7 is neutral)
even when acids, which lower pH, or bases, which raise pH, are added to the solution. Its ability
to tabletize makes it a good effervescent ingredient in antacids and denture cleaning products.
Sodium bicarbonate is also found in some anti-plaque mouth-wash products and toothpaste.
When baking soda is used as a cleaner in paste form or dry on a damp sponge, its crystalline
structure provides a gentle abrasion that helps to remove dirt without scratching sensitive
surfaces. Its mild alkalinity works to turn up fatty acids contained in dirt and grease into a form
of soap that can be dissolved in water and rinsed easily. Baking soda is also used as a leavening
agent in making baked goods such as bread or pancakes. When combined with an acidic agent
(such as lemon juice), carbon dioxide gas is released and is absorbed by the product's cells. As
the gas expands during baking, the cell walls expand as well, creating a leavened product.
In addition to its many home uses, baking soda also has many industrial applications. For
instance, baking soda releases carbon dioxide when heated. Since carbon dioxide is heavier than
air, it can smother flames by keeping oxygen out, making sodium bicarbonate a useful agent in
fire extinguishers. Other applications include air pollution control (because it absorbs sulfur
dioxide and other acid gas emissions), abrasive blasting for removal of surface coatings,
chemical manufacturing, leather tanning, oil well drilling fluids (because it precipitates calcium
and acts as a lubricant), rubber and plastic manufacturing, paper manufacturing, textile
processing, and water treatment (because it reduces the level of lead and other heavy metals).
68-4
III. MARKET STUDY AND PLANT CAPACITY
A. MARKET STUDY
1. Past Supply and Present Demand
Since there is no plant that manufactures sodium bicarbonate locally, the country`s requirement
is entirely met through import. Ethiopia imports most of its requirement of sodium bicarbonate
mainly from China. Other suppliers of the product include India, Germany, United Kingdom,
and France. Past supply of the product through import, which indicates the extent of demand, is
presented in Table 3.1.
Table 3.1
IMPORT OF SODIUM BICARBONATE
Year Qty
( Tons)
Value
( ‘000 Birr)
2000 124.5 293.5
2001 370.8 1,221.7
2002 22.0 87.8
2003 247.1 796.9
2004 140.0 532.6
2005 164.4 545.3
2006 269.5 1,022.2
2007 281.5 980.0
2008 656.9 2851.2
2009 486.6 2,696.1
2010 576.7 3,717.5
2011 663.9 6,030.4
Source: - Ethiopian Revenues and Customs Authority.
68-5
The 12 years time series data presented in Table 3.1 reveals that the imported quantity had
generally an increasing trend although there were some fluctuations in certain years. The actual
increasing trend can be clearly shown when the data set is analyzed by diving in to three years
intervals. Accordingly, the yearly average volume of import which was 172.4 tons during the
period 2000-2002 has increased to 241.3 tons during the period 2003-2005. Compared to the
previous three years average the total growth rate is about 40% or a yearly average growth of
13%. Similarly, the yearly average quantity imported during the period 2006-2008 and 2009-
2011 has increased to 402.6 tons and 575.7 tons, respectively.
The above figures indicate that the yearly average level of import during the period 2006-2008
has increased by a total of about 66% or by 20% annually compared to the previous three years
average. Similarly, the yearly average volume of import during the period 2009-2011 is higher
by a total of 43% or by 12% annually compared to the average imported volume during 2006 –
2008. Generally, in the past 12 years the annual average growth rate of import was around 16%.
The annual average growth of import observed during the past 12 years is applied to arrive at the
present demand by taking year 2011 import as a base. Accordingly, present effective demand for
sodium bicarbonate is set at 770 tons.
2. Demand Projection
The demand for sodium bicarbonate is mainly influenced by the growth the food manufacturing
sub sector. The food manufacturing sector in turn is influenced by the general economic growth
of the country in general and urban population growth. By considering the combined effect of the
two factors ,a 6 % annual average growth rate is applied in forecasting the future demand. The
results obtained based on this reasonable assumption is presented in Table 3.2.
68-6
Table 3.2
PROJECTED DEMAND FOR SODIUM BICARBONATE (TONS)
Year Projected
Demand
2013 816
2014 865
2015 917
2016 972
2017 1,034
2018 1,092
2019 1,158
2020 1,227
2021 1,301
2022 1,379
2023 1,462
The demand for sodium bicarbonate will grow from 816 tons in the year 2013 to 1,092 tons and
1,462 tons by the year 2018 and year 2023, respectively.
3. Pricing and distribution
Based on the CIF value of imported sodium bicarbonate in the year 2011 and adding other
associated costs with import a factory gate price of Birr 15,900 per ton is recommended for sales
revenue projection and financial evaluation.
Sodium bicarbonate is largely consumed by bakeries and urban households for baking. Since the
numbers of end users are relatively large and scattered in a wide geographical area the product
has to reach the end users through distributors and retailers.
68-7
B. PLANT CAPACITY AND PRODUCTION PROGRAM
1. Plant Capacity
The demand for sodium bicarbonate rises from 816 tons in the year 2013 to 1,462 tons by the year
2023. Therefore, the plant is proposed to have a capacity of 1,000 ton/year, in 300 working days
and operating in three shift of 8 hrs each considering the market study, period for project
implementation and full capacity attainment, minimum economies of scale in the context of
Ethiopia and availability of machinery in the world market.
2. Production Program
The production programme is set by considering just 300 working days per annum. The plant starts
operation at 75% of its full capacity operation and progressively grow to 90% and full capacity
operation in the second and third year and then after respectively. The production programme is
shown in Table 3.3.
Table 3.3
PRODUCTION PROGRAM
Year 1 2 3-10
Capacity utilisation (%)
75
90
100
Sodium bicarbonate (tons) 750 900 1,000
IV. MATERIALS AND INPUTS
A. RAW MATERIALS
The major raw materials required for the production of sodium bicarbonate are soda ash and carbon
dioxide, which are all available locally. The total annual cost of raw and auxiliary materials is
estimated at Birr 7,270,000. The annual material requirement of the plant is shown in Table 4.1.
68-8
Table 4.1
ANNUAL RAW MATERIAL REQUIREMENT&COST
Sr.
No.
Item
Total Qty
1 Soda ash (tons) 630 4,410
2 Carbon dioxide (tons) 262 2,620
3 Packing Materials (25 kg
Polypropylene sacks)
40,000 240
Total 7,270
B. UTILITIES
Utilities such as oil, water and electricity are required by the plant. The total cost of utilities is
estimated at Birr 859,200. The annual consumption is shown in Table 4.2.
Table 4.2
ANNUAL CONSUMPTION OF UTILITIES
Sr.
No
Utility
Unit
Annual
Consumption
Cost
(‘000 Birr)
1 Kerosene lt 15,000 270.0
2 Water m3 45,000 450.0
3 Electricity Kwh 240,000 139.2
Total 859.2
68-9
V. TECHNOLOGY AND ENGINEERING
A. TECHNOLOGY
1. Production Process
Soda ash is dissolved in a rotary dissolver and the soda ash solution is filtered to remove any non-
soluble materials and is then pumped through a feed tank to the top of a carbonating tower. Purified
carbon dioxide is introduced into the bottom of the tower and held under pressure. As the saturated
sodium solution moves through the tower, it cools and reacts with the carbon dioxide to form
sodium bicarbonate crystals. These crystals are collected at the bottom of the tower and transferred
to centrifuge, where excess solution (filtrate) is filtered out. The crystals are then washed in a
bicarbonate solution, forming a cake-like substance ready for drying. The filtrate that is removed
from the centrifuge is recycled to the rotary dissolver, where it is used to saturate more soda ash
crystal.
The washed filter cake is then dried on either a continuous belt conveyor or in a vertical tube drier
called a flash dryer.
Next, the dried crystals of sodium bicarbonate are separated into various grades by particle size.
Standard grades of sodium bicarbonate and special grades are manufactured to meet customers'
specific requirements, and particle size is the major determinant of grades. Powdered type 1 and fine
granular type 2 have a wide range of uses in foods, chemicals, and pharmaceuticals. Granular grades
type 4 and type 5 are found in foods and doughnuts, cleaning compounds, pharmaceuticals, and
many other products. Industrial grade sodium bicarbonate is used in diverse applications, including
oil well drilling fluids, fire extinguishing materials, and water treatment.
Each grade goes to a holding bin wherein atmosphere, carbon dioxide, and moisture content are
controlled to "cure" the product. Once cured, the grades are ready to be packaged and transported.
2. Environmental Impact Assessment
The process does not have any adverse impact on environment since the technology selected is a
closed circuit.
68-10
B. ENGINEERING
1. Machinery and Equipment
The total cost of this machinery and equipment is estimated at about Birr 11,160,000, out of which
Birr 8,370,000 will be required in foreign currency. The list of machinery and equipment required
by the envisaged plant is given in Table 5.1.
Table 5.1
LIST OF MACHINERY AND EQUIPMENT
Sr.No. Item Qty.
1 Soda ash silo 1
2 Rotary dissolving tank 1
3 Filter 1
4 Feed tank 1
5 Pump 3
6 Carbonating tower 1
7 Centrifuge 1
6 Flash dryer 1
7 Sieve 1
8 Product silo 1
9 Packing machine 1
2. Land, Building and Civil Works
The total land requirement including sewers, storage, open spaces etc. is estimated to be 1,200 m2.
The major buildings and civil works include buildings for production, offices, workshops and
warehouses. The total built up area required is about 700 m2. Total cost of building and other civil
works is estimated at Birr 3.5 million.
68-11
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No
721/2004) in principle, urban land permit by lease is on auction or negotiation basis, however,
the time and condition of applying the proclamation shall be determined by the concerned
regional or city government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease prices. The
lease period ranges from 99 years for education, cultural research health, sport, NGO , religious
and residential area to 80 years for industry and 70 years for trade while the lease payment
period ranges from 10 years to 60 years based on the towns grade and type of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the entire
amount of the lease will receive 0.5% discount from the total lease value and those that pay in
installments will be charged interest based on the prevailing interest rate of banks. Moreover,
based on the type of investment, two to seven years grace period shall also be provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting the
maximum has conferred on regional and city governments the power to issue regulations on the
exact terms based on the development level of each region.
In Addis Ababa, the City’s Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. However, regarding the manufacturing
sector, industrial zone preparation is one of the strategic intervention measures adopted by the
City Administration for the promotion of the sector and all manufacturing projects are assumed
to be located in the developed industrial zones.
Regarding land allocation of industrial zones if the land requirement of the project is below 5000
m2
the land lease request is evaluated and decided upon by the Industrial Zone Development and
Coordination Committee of the City’s Investment Authority. However, if the land request is
above 5,000 m2 the request is evaluated by the City’s Investment Authority and passed with
recommendation to the Land Development and Administration Authority for decision, while the
lease price is the same for both cases.
68-12
Moreover, the Addis Ababa City Administration has recently adopted a new land lease floor
price for plots in the city. The new prices will be used as a benchmark for plots that are going to
be auctioned by the city government or transferred under the new “Urban Lands Lease Holding
Proclamation.”
The new regulation classified the city into three zones. The first Zone is Central Market District
Zone, which is classified in five levels and the floor land lease price ranges from Birr 1,686 to
Birr 894 per m2. The rate for Central Market District Zone will be applicable in most areas of the
city that are considered to be main business areas that entertain high level of business activities.
The second zone, Transitional Zone, will also have five levels and the floor land lease price
ranges from Birr 1,035 to Birr 555 per m2 .This zone includes places that are surrounding the city
and are occupied by mainly residential units and industries.
The last and the third zone, Expansion Zone, is classified into four levels and covers areas that
are considered to be in the outskirts of the city, where the city is expected to expand in the future.
The floor land lease price in the Expansion Zone ranges from Birr 355 to Birr 191 per m2
(see
Table 5.2).
Table 5.2
NEW LAND LEASE FLOOR PRICE FOR PLOTS IN ADDIS ABABA
Zone Level
Floor
Price/m2
Central Market
District
1st 1686
2nd
1535
3rd
1323
4th
1085
5th
894
Transitional zone
1st 1035
2nd
935
3rd
809
4th
685
5th
555
Expansion zone
1st 355
2nd
299
3rd
217
4th
191
68-13
Accordingly, in order to estimate the land lease cost of the project profiles it is assumed that all
new manufacturing projects will be located in industrial zones located in expansion zones.
Therefore, for the profile a land lease rate of Birr 266 per m2
which is equivalent to the average
floor price of plots located in expansion zone is adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period and
extending the lease payment period. The criterions are creation of job opportunity, foreign
exchange saving, investment capital and land utilization tendency etc. Accordingly, Table 5.3
shows incentives for lease payment.
Table 5.3
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS
Scored Point
Grace
Period
Payment
Completion
Period
Down
Payment
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%
For the purpose of this project profile, the average i.e. five years grace period, 28 years payment
completion period and 10% down payment is used. The land lease period for industry is 60
years. Accordingly, the total land lease cost at a rate of Birr 266 per m2 is estimated at Birr
319,200 of which 10% or Birr 31,920 will be paid in advance. The remaining Birr 287,280 will
be paid in equal installments with in 28 years i.e. Birr 10,260 annually.
VI. HUMAN RESOURCE AND TRAINING REQUIREMENT
A. HUMAN RESOURCE REQUIREMENT
The plant requires a total of 39 persons. The total annual cost of labour is estimated at Birr 958,500.
The human resource requirement of the plant and the monthly and annual salary expenditure are
shown in Table 6.1.
68-14
Table 6.1
REQUIRED HUMAN RESORCE AND COST(BIRR)
Sr.
No.
Manpower No. of Persons Monthly
Salary
Annual Cost
1
2
3
4
5
6
7
8
9
10
11
12
13
General Manager
Technical Manager
Personnel
Production Head
Supervisor
Chemist
Skilled operators
Semi-skilled Operators
Maintenance crew
Accountant
Sales and purchasing officer
Unskilled labour
General service workers
1
1
1
1
1
1
6
6
5
2
2
4
8
8,000
5,000
3,000
5000
3,000
2,500
9,000
6,000
6,000
5,000
5,000
1,600
4,800
96,000
60,000
36,000
60,000
36,000
30,000
108,000
72,000
72,000
60,000
60,000
19,200
57,600
Sub -total 39 63,900 766,800
Employees benefit(25% of
basic salary)
15,975 191,700
Total 79,875 958,500
B. TRAINING REQUIREMENT
The technical personnel of the plant should be trained by qualified engineers of the machinery
supplier. The cost of training shall be Birr 45,000.
68-15
VII. FINANCIAL ANALYSIS
The financial analysis of the sodium bicarbonate project is based on the data presented in the
previous chapters and the following assumptions:-
Construction period 1 year
Source of finance 30 % equity & 70% loan
Tax holidays 3 years
Bank interest 10%
Discount cash flow 10%
Accounts receivable 30 days
Raw material local 30 days
Raw material imported 120 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost
A. TOTAL INITIAL INVESTMENT COST
The total investment cost of the project including working capital is estimated at Birr 19.99
million (see Table 7.1). From the total investment cost the highest share (Birr 15.89 million or
79.50%) is accounted by fixed investment cost followed by pre operation cost (2.166 million or
10.83%) and initial working capital (Birr 1.93 million or 9.67%). From the total investment cost,
Birr 8.37 million or 41.87% is required in foreign currency.
68-16
Table 7.1
INITIAL INVESTMENT COST ( ‘000 Birr)
Sr.
No Cost Items
Local
Cost
Foreign
Cost
Total
Cost
%
Share
1 Fixed investment
1.1 Land Lease 31.92 31.92 0.16
1.2 Building and civil work 3,500.00 3,500.00 17.51
1.3 Machinery and equipment 2,790.00 8,370.00 11,160.00 55.83
1.4 Vehicles 900.00 900.00 4.50
1.5 Office furniture and equipment 300.00 300.00 1.50
Sub total 7,521.92 8,370.00 15,891.92 79.50
2 Pre operating cost *
2.1 Pre operating cost 858.00 858.00 4.29
2.2 Interest during construction 1,307.78 1,307.78 6.54
Sub total 2,165.78 2,165.78 10.83
3 Working capital ** 1,932.59 1,932.59 9.67
Grand Total 11,620.29 8,370.00 19,990.29 100
* N.B Pre operating cost include project implementation cost such as installation, startup,
commissioning, project engineering, project management etc and capitalized interest during
construction.
** The total working capital required at full capacity operation is Birr 2.62 million. However,
only the initial working capital of Birr 1.93 million during the first year of production is
assumed to be funded through external sources. During the remaining years the working
capital requirement will be financed by funds to be generated internally (for detail working
capital requirement see Appendix 7.A.1).
B. PRODUCTION COST
The annual production cost at full operation capacity is estimated at Birr 14.01 million (see Table
7.2). The cost of raw material account for 51.89% of the production cost. The other major
components of the production cost are depreciation, financial cost and labor which account for
19.65%, 9.89% and 6.13%, respectively. The remaining 12.44 % is the share of utility, repair and
maintenance, labor overhead and administration cost. For detail production cost see Appendix
7.A.2.
68-17
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR THREE)
Items Cost
(in 000
Birr) %
Raw Material and Inputs
7,270.00 52.36
Utilities
859.20 6.19
Maintenance and repair
334.80 2.41
Labour direct
766.80 5.52
Labour overheads
191.70 1.38
Administration Costs
150.00 1.08
Land lease cost - -
Cost of marketing and destribution
300.00 2.16
Total Operating Costs
9,872.50 71.10
Depreciation
2,753.60 19.83
Cost of Finance
1,258.73 9.07
Total Production Cost
13,884.83 100
C. FINANCIAL EVALUATION
1. Profitability
Based on the projected profit and loss statement, the project will generate a profit throughout its
operation life. Annual net profit after tax ranges from Birr 1.54 million to Birr 4.09 million
during the life of the project. Moreover, at the end of the project life the accumulated net cash
flow amounts to Birr 32.91 million. For profit and loss statement and cash flow projection see
Appendix 7.A.3 and 7.A.4, respectively.
68-18
2. Ratios
In financial analysis financial ratios and efficiency ratios are used as an index or yardstick for
evaluating the financial position of a firm. It is also an indicator for the strength and weakness of
the firm or a project. Using the year-end balance sheet figures and other relevant data, the most
important ratios such as return on sales which is computed by dividing net income by revenue,
return on assets (operating income divided by assets), return on equity (net profit divided by
equity) and return on total investment (net profit plus interest divided by total investment) has
been carried out over the period of the project life and all the results are found to be satisfactory.
3. Break-even Analysis
The break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium. To this end, the break-even
point for capacity utilization and sales value estimated by using income statement projection are
computed as followed.
Break -Even Sales Value = Fixed Cost + Financial Cost = Birr 6,678,000
Variable Margin ratio (%)
Break - Even Capacity utilization = Break - even Sales Value X 100 = 48.26%
Sales revenue
4. Pay-back Period
The pay -back period, also called pay – off period is defined as the period required for recovering
the original investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the project’s initial investment
will be fully recovered within 4 years.
68-19
5. Internal Rate of Return
The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate
of return for an investment is the discount rate that makes the net present value of the
investment's income stream total to zero. It is an indicator of the efficiency or quality of an
investment. A project is a good investment proposition if its IRR is greater than the rate of return
that could be earned by alternate investments or putting the money in a bank account.
Accordingly, the IRR of this project is computed to be 23.77% indicating the viability of the
project.
6. Net Present Value
Net present value (NPV) is defined as the total present (discounted) value of a time series of cash
flows. NPV aggregates cash flows that occur during different periods of time during the life of a
project in to a common measuring unit i.e. present value. It is a standard method for using the
time value of money to appraise long-term projects. NPV is an indicator of how much value an
investment or project adds to the capital invested. In principle, a project is accepted if the NPV is
non-negative.
Accordingly, the net present value of the project at 10% discount rate is found to be Birr 13.38
million which is acceptable. For detail discounted cash flow see Appendix 7.A.5.
D. ECONOMIC AND SOCIAL BENEFITS
The project can create employment for 39 persons. The project will generate Birr 9.60 million in
terms of tax revenue. The establishment of such factory will have a foreign exchange saving
effect to the country by substituting the current imports. The project will also create backward
and forward linkage with the chemical and food manufacturing sub sector and also generates
income for the Government in terms of payroll tax.
68-20
Appendix 7.A
FINANCIAL ANALYSES SUPPORTING TABLES
68-21
Appendix 7.A.1
NET WORKING CAPITAL ( in 000 Birr)
Items Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
Total inventory 1,363.13 1,635.75 1,817.50 1,817.50 1,817.50 1,817.50 1,817.50 1,817.50 1,817.50 1,817.50
Accounts receivable 623.28 742.94 822.71 822.71 823.56 823.56 823.56 823.56 823.56 823.56
Cash-in-hand 15.03 18.04 20.05 20.05 20.19 20.19 20.19 20.19 20.19 20.19
CURRENT ASSETS 2,001.44 2,396.73 2,660.25 2,660.25 2,661.25 2,661.25 2,661.25 2,661.25 2,661.25 2,661.25
Accounts payable 68.85 82.62 91.80 91.80 91.80 91.80 91.80 91.80 91.80 91.80
CURRENT
LIABILITIES 68.85 82.62 91.80 91.80 91.80 91.80 91.80 91.80 91.80 91.80
TOTAL WORKING
CAPITAL 1,932.59 2,314.11 2,568.45 2,568.45 2,569.45 2,569.45 2,569.45 2,569.45 2,569.45 2,569.45
68-22
Appendix 7.A.2
PRODUCTION COST ( in 000 Birr)
Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
Raw Material and Inputs 5,453 6,543 7,270 7,270 7,270 7,270 7,270 7,270 7,270 7,270
Utilities 644 773 859 859 859 859 859 859 859 859
Maintenance and repair 251 301 335 335 335 335 335 335 335 335
Labour direct 575 690 767 767 767 767 767 767 767 767
Labour overheads 144 173 192 192 192 192 192 192 192 192
Administration Costs 113 135 150 150 150 150 150 150 150 150
Land lease cost 0 0 0 0 10 10 10 10 10 10
Cost of marketing
and distribution 300 300 300 300 300 300 300 300 300 300
Total Operating Costs 7,479 8,915 9,873 9,873 9,883 9,883 9,883 9,883 9,883 9,883
Depreciation 2,754 2,754 2,754 2,754 2,754 170 170 170 170 170
Cost of Finance 0 1,439 1,259 1,079 899 719 539 360 180 0
Total Production Cost 10,233 13,107 13,885 13,705 13,535 10,772 10,592 10,412 10,233 10,053
68-23
Appendix 7.A.3
INCOME STATEMENT ( in 000 Birr)
Item
Year
2
Year
3
Year
4
Year
5
Year
6
Year
7
Year
8
Year
9 Year 10 Year 11
Sales revenue 11,925 14,310 15,900 15,900 15,900 15,900 15,900 15,900 15,900 15,900
Less variable costs 7,179 8,615 9,573 9,573 9,573 9,573 9,573 9,573 9,573 9,573
VARIABLE MARGIN 4,746 5,695 6,328 6,328 6,328 6,328 6,328 6,328 6,328 6,328
in % of sales revenue 39.80 39.80 39.80 39.80 39.80 39.80 39.80 39.80 39.80 39.80
Less fixed costs 3,054 3,054 3,054 3,054 3,064 480 480 480 480 480
OPERATIONAL MARGIN 1,692 2,641 3,274 3,274 3,264 5,847 5,847 5,847 5,847 5,847
in % of sales revenue 14.19 18.46 20.59 20.59 20.53 36.78 36.78 36.78 36.78 36.78
Financial costs 1,439 1,259 1,079 899 719 539 360 180 0
GROSS PROFIT 1,692 1,203 2,015 2,195 2,365 5,128 5,308 5,488 5,667 5,847
in % of sales revenue 14.19 8.40 12.67 13.80 14.87 32.25 33.38 34.51 35.64 36.78
Income (corporate) tax 0 0 0 658 709 1,538 1,592 1,646 1,700 1,754
NET PROFIT 1,692 1,203 2,015 1,536 1,655 3,590 3,715 3,841 3,967 4,093
in % of sales revenue 14.19 8.40 12.67 9.66 10.41 22.58 23.37 24.16 24.95 25.74
68-24
Appendix 7.A.4
CASH FLOW FOR FINANCIAL MANAGEMENT ( in 000 Birr)
Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Scrap
TOTAL CASH INFLOW 16,750 15,234 14,324 15,909 15,900 15,900 15,900 15,900 15,900 15,900 15,900 6,009
Inflow funds 16,750 3,309 14 9 0 0 0 0 0 0 0 0
Inflow operation 0 11,925 14,310 15,900 15,900 15,900 15,900 15,900 15,900 15,900 15,900 0
Other income 0 0 0 0 0 0 0 0 0 0 0 6,009
TOTAL CASH
OUTFLOW 16,750 10,789 12,547 13,193 13,408 13,290 13,939 13,813 13,687 13,561 11,637 0
Increase in fixed assets 16,750 0 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 2,001 395 264 0 1 0 0 0 0 0 0
Operating costs 0 7,179 8,615 9,573 9,573 9,583 9,583 9,583 9,583 9,583 9,583 0
Marketing and
Distribution cost 0 300 300 300 300 300 300 300 300 300 300 0
Income tax 0 0 0 0 658 709 1,538 1,592 1,646 1,700 1,754 0
Financial costs 0 1,308 1,439 1,259 1,079 899 719 539 360 180 0 0
Loan repayment 0 0 1,798 1,798 1,798 1,798 1,798 1,798 1,798 1,798 0 0
SURPLUS (DEFICIT) 0 4,446 1,776 2,716 2,492 2,610 1,961 2,087 2,213 2,339 4,263 6,009
CUMULATIVE CASH
BALANCE 0 4,446 6,222 8,938 11,430 14,040 16,001 18,088 20,302 22,641 26,904 32,913
68-25
Appendix 7.A.5
DISCOUNTED CASH FLOW ( in 000 Birr)
Item Year 1
Year
2 Year 3
Year
4 Year 5
Year
6 Year 7
Year
8 Year 9
Year
10 Year 11 Scrap
TOTAL CASH INFLOW 0 11,925 14,310 15,900 15,900 15,900 15,900 15,900 15,900 15,900 15,900 6,009
Inflow operation 0 11,925 14,310 15,900 15,900 15,900 15,900 15,900 15,900 15,900 15,900 0
Other income 0 0 0 0 0 0 0 0 0 0 0 6,009
TOTAL CASH OUTFLOW 18,683 7,861 9,170 9,873 10,532 10,592 11,421 11,475 11,529 11,583 11,637 0
Increase in fixed assets 16,750 0 0 0 0 0 0 0 0 0 0 0
Increase in net working capital 1,933 382 254 0 1 0 0 0 0 0 0 0
Operating costs 0 7,179 8,615 9,573 9,573 9,583 9,583 9,583 9,583 9,583 9,583 0
Marketing and Distribution cost 0 300 300 300 300 300 300 300 300 300 300 0
Income (corporate) tax 0 0 0 658 709 1,538 1,592 1,646 1,700 1,754 0
NET CASH FLOW -18,683 4,064 5,140 6,028 5,368 5,308 4,479 4,425 4,371 4,317 4,263 6,009
CUMULATIVE NET CASH FLOW -18,683
-
14,618 -9,478 -3,450 1,918 7,225 11,704 16,129 20,500 24,817 29,080 35,089
Net present value -18,683 3,695 4,248 4,529 3,666 3,296 2,528 2,271 2,039 1,831 1,644 2,317
Cumulative net present value -18,683
-
14,988 -10,740 -6,211 -2,545 751 3,279 5,550 7,589 9,420 11,064 13,380
NET PRESENT VALUE 13,380
INTERNAL RATE OF RETURN 23.77%
NORMAL PAYBACK 4 years
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